November 18th, 2008

See me in the latest issue of "Technical Analyst", Trading Volatility with the VIX

Directionless stock market trade may point to lower indices.

All eyes were on Capitol Hill as Treasury Secretary Henry Paulson and Fed Chair Ben Bernanke defended the $700 billion bailout.  Paulson reiterated reservations in regards to tapping the bailout money to provide mortgage guarantees in an attempt to reduce the number of home foreclosures. 

Additionally, Paulson claims that although allowing a U.S. auto company to fail would not be a "good thing" he is opposed to allocating $25 billion of the bailout money to fund struggling car-makers. 

The major indices traded nicely higher in early trade but news of a plunge in the homebuilder sentiment index turned the market on a dime.  According to the National Association of Home Builders, the housing market index reached another record low as rising unemployment and the ongoing financial crisis saga continues to weigh on home sales.  The index is currently sitting at a value of 9 after falling to 14 last month.  A reading below 50 indicates a negative outlook in the homebuilding industry. 

I hate to say it, but the market may be looking for the 2002 lows in the S&P near 770.  In the meantime, there is support at 812 and again at 800.  I am not suggesting that a large bounce is out of the question, in fact I think that we may be setting up for a large rally.  The problem is that there is a strong possibility that we will  run sell stops and make new lows before the reversal occurs. 

Dow futures traders should consider support levels near 7,900 and again at 7,650.  There is a lot of premium in the puts, it is scary but selling seems to be a good call.  I like selling the December mini- Dow 6000 puts for 100 or better.

If you took our recommendation to buy the S&P 500 e-mini 1030 calls, you may want to consider adding on as the market dips.  This may mean lowering the strike price and entering for the same premium of $300 or simply adding on to the existing at a better price. 

Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted.

S&P 500 Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

October 29 - Clients were advised to purchase the November mini S&P 700 puts, fills were at or near $6 or $300.

·         November 7 - These are underwater, but not out of the question.  Place an order to sell them at or near $15.

November 12 - Our clients were advised to buy the December e- mini S&P 500 1030 calls for $6 in premium or $300. 

Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted.

Dow Jones Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

November 18 - There is a lot of premium in the puts, it is scary but selling seems to be a good call.  I like selling the December mini- Dow 6000 puts for 100 or better.  It will take additional weakness to get this filled. 

Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.

NASDAQ Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Swing Trade -

Flat

There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.